Industry Groups Endorse In-Plan Annuity Guidance

Treasury Department and Internal Revenue Service (IRS)
guidance published
earlier in October seeks to expand the use of income annuities in
401(k) plans. The Department of Labor (DOL) also threw its hat into the game
via an explanatory letter, confirming
that target-date funds (TDFs) that include annuities among their underlying
fixed-income investments satisfy qualified default
investment alternative (QDIA) rules.

The flurry of regulatory activity around in-plan annuity use
has received positive marks from a number of industry advocacy groups—most of
which seem to agree that it’s important to find ways to expand the use of
annuities in defined contribution (DC) plans. For example, calling the guidance
an “important step to promote retirement security,” the Institutional
Retirement Income Council (IRIC) says it fully endorses the move by Treasury
and the IRS to bring more certainty to the process of folding annuities into
qualified retirement plans.

“The Institutional Retirement Income Council is pleased with
the additional guidance that the Internal Revenue Service and Department of
Labor have issued on retirement income strategies in qualified plans,” notes
IRIC President William Charyk. “[The guidance] can provide significant comfort
to plan sponsors who would like to offer a deferred annuity feature as part of
their target-date fund lineup.”

Pointing specifically to the DOL’s information letter,
Charyk says that plan sponsors have received critical insights on including
deferred annuities as part of their plan’s QDIA without triggering fiduciary
liability problems. He suggests the new “annuity selection safe harbor” should
provide significant comfort to plan sponsors who have worried about the
fiduciary implications of including in-plan lifetime income annuities.

“IRIC appreciates both agencies’ attention to the practical
concerns of plan sponsors and looks forward to the release of continued
practical guidance from the government to assist the aging population in
addressing their retirement needs,” Charyk adds.

The
Treasury and IRS guidance was published as Notice 2014-66 and
provides that plan sponsors can include deferred income annuities in TDFs used
as a QDIA in a manner that complies with key plan qualification rules. Notice
2014-66, in turn, supplements
final rules issued this summer for including longevity annuities in a
qualified retirement plan account—making it clear that plan fiduciaries have
the option to offer TDFs that include such annuity contracts either as a
default or as a participant-elected investment.

Another industry advocacy group also weighed in positively
on the new guidance. In its own response letter, the Insured Retirement
Institute (IRI) says it is enthusiastic that “Treasury continues to support
lifetime income retirement plans.”

IRI President and CEO Cathy Weatherford says the guidance
“demonstrates the Treasury Department’s commitment to, and ongoing support for,
making lifetime income more accessible in workplace retirement plans.”

“By continuing to break down access barriers and providing
plan sponsors with this clear guidance, the Treasury Department is
acknowledging the important part annuities have in helping Americans attain
financial security in retirement,” Weatherford adds. “On behalf of our
membership and all those who seek to enhance retirement security in America, we
commend Deputy Assistant Secretary Mark Iwry, the Treasury Department and the
Administration for their efforts to promote access to lifetime income, and we
look forward to their continued partnership as we seek to ensure that all Americans
can achieve a financially secure and dignified retirement.”

IRI
says it has provided significant input to and has been heeded by the Treasury
Department and the Obama Administration since it announced a broad initiative
to promote access to lifetime income in retirement plans.